Warren Buffett turned heads last month when Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) revealed its portfolio moves through the end of June. He's done a lot of selling with the market rising, and most of the moves make sense.
Dumping airlines in this brutal climate and buying into the gold industry as a portfolio hedge are reasonable portfolio shifts. However, one of the more surprising things in the mid-August filings is that Berkshire Hathaway unloaded 62% of his shares in Sirius XM Holdings (NASDAQ:SIRI). There's more to this move than meets the eye -- or eardrum.
Turning down the volume
It was refreshing and surprising to see Berkshire Hathaway initiate a position in Sirius XM Holdings in 2016. Wasn't this the same satellite radio upstart that traded for as little as a nickel in early 2009 when it was on the brink of bankruptcy? Was Buffett chasing penny stocks?
Sirius XM has grown up a lot over the past dozen years since the merger of Sirius Satellite Radio and XM Satellite Radio. It's now a steadily growing business that is consistently profitable. It's a money tree, expecting to approach $1.6 billion in free cash flow this year. It's a prototypical Buffett stock once you get past its rocky origin story and the speculative nature of media stocks in the seemingly troubled radio industry.
Berkshire Hathaway's initial call on Sirius XM panned out nicely. The stock has moved higher every year since Buffett initiated the position, even if that run will likely end in 2020.
Why did Buffett prune away at his position? One can argue that the Oracle of Omaha is concerned about auto ownership trends, as Sirius XM needs a thriving network of drivers tuning in through their factory-installed satellite receivers. It's also a recession, and it wouldn't be a shock to see folks cancel their satellite radio subscriptions if they're not commuting to work or hitting the road as often as they used to. The weak radio advertising market could also be weighing on the upside of Sirius XM in the near term.
However, investors shouldn't assume that Buffett is bailing on the satellite radio monopoly. Berkshire Hathaway has an even larger position in Liberty SiriusXM (NASDAQ:LSXMA) (NASDAQ:LSXMK), the Sirius XM tracking shares of Liberty Media, which has a majority 71.5% stake in Sirius XM Holdings. Buffett actually increased his ownership of Liberty SiriusXM -- the C shares -- during the quarter, offsetting the sale of Sirius XM stock.
It's a smart move. Liberty SiriusXM has historically traded at a markdown to its assets, and at the beginning of the year it represented a way to get exposure to Sirius XM at a roughly 30% discount. Buffett isn't giving up on satellite radio. He's making a smarter investment, but if you know Buffett and Berkshire Hathaway, you probably figured that.